FINANCIAL Highlights
 (in thousands, except per share information)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Revenues
    
    $
    144,536
    
    
    $
    126,859
    
    
    $
    116,212
    
    
    $
    108,981
    
    
    $
    95,420Costs of revenues and depreciation
    
    
    69,901
    
    
    
    55,848
    
    
    
    49,350
    
    
    
    45,862
    
    
    
    44,778Selling, general and administrative expenses
    
    
    43,940
    
    
    
    42,000
    
    
    
    35,161
    
    
    
    31,234
    
    
    
    33,517Interest and other, net
    
    
    (3,292
    )
    
    
    (5,440
    )
    
    
    (2,705
    )
    
    
    (3,234
    )
    
    
    (1,335
    )Income before income taxes
    
    
    33,987
    
    
    
    34,451
    
    
    
    34,406
    
    
    
    35,119
    
    
    
    18,460Income tax provision
    
    
    12,883
    
    
    
    13,402
    
    
    
    12,222
    
    
    
    10,854
    
    
    
    6,476Net income
    
    $
    21,104
    
    
    $
    21,049
    
    
    $
    22,184
    
    
    $
    24,265
    
    
    $
    11,984Earnings per share:Basic
    
    $
    0.81
    
    
    $
    0.82
    
    
    $
    0.87
    
    
    $
    0.97
    
    
    $
    0.48Diluted
    
    $
    0.81
    
    
    $
    0.81
    
    
    $
    0.86
    
    
    $
    0.96
    
    
    $
    0.48Shares used in per share calculation:Basic
    
    
    25,910
    
    
    
    25,716
    
    
    
    25,359
    
    
    
    24,978
    
    
    
    24,860Diluted
    
    
    26,079
    
    
    
    26,053
    
    
    
    25,762
    
    
    
    25,369
    
    
    
    25,034Total assets
    
    $
    293,082
    
    
    $
    284,819
    
    
    $
    260,936
    
    
    $
    234,847
    
    
    $
    207,695Shareholders equity
    
    $
    256,108
    
    
    $
    243,479
    
    
    $
    221,841
    
    
    $
    195,017
    
    
    $
    168,616Shareholders equity per common share
    
    $
    9.87
    
    
    $
    9.43
    
    
    $
    8.68
    
    
    $
    7.77
    
    
    $
    6.77Cash dividends declared per common share
    
    $
    0.35
    
    
    $
    0.10
    
    
    
    
    
    
    
    
    
    
    $
    4.00




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##### 



10
 Electro Rent 2008 Annual Report
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion of our financial condition and results of operations should be read in
conjunction with the fiscal 2008 Consolidated Financial Statements and the notes thereto and the
other financial and statistical information appearing elsewhere in this annual report.
 OVERVIEW
 We generate revenues through the rental, lease and sale of electronic equipment, primarily test and
measurement (T&M) and personal computer-related data products (DP) equipment. In fiscal 2008,
78% of our rental and lease revenues were derived from T&M equipment. This percentage has increased
from the prior year period as a result of growth in our foreign subsidiaries, which derive their
rental and lease revenue from T&M equipment, and growth in T&M activity in the aerospace and
defense, telecommunications and electronics markets.
 In fiscal 2008, rental revenues comprised 83% of our rental and lease revenue. That percentage has
increased over the last three years due to an increase in T&M rental activity in our U.S. and
foreign operations, while lease revenues have remained relatively unchanged.
 A significant part of our T&M equipment portfolio is rented or leased to large companies in the
aerospace and defense, telecommunications, semiconductor and electronics industries. We believe
that a large part of our T&M equipment is used in research and development activities. We also rent
equipment to companies of various sizes representing a cross-section of industry. Our business is
relatively non-seasonal except for the third quarter months of December, January and February, when
rental activity declines due to extended holiday closings by a number of customers. In addition,
rental billing is reduced during February because it is a short month.
 We sell used equipment in the normal course of business based on customer requirements. Our sale of
used equipment allows us to maintain our inventory with equipment that meets current technological
standards. In fiscal 2007, we entered into distribution agreements with three leading manufacturers
to sell basic T&M equipment to current and prospective customers through our new distribution
channel.
 The profitability of our business depends in part on controlling the timing, pricing and mix of
purchases and sales of equipment. We seek to acquire new and used equipment at attractive prices
for the purpose of deriving a profit from a combination of renting and/or selling such equipment.
The sale of equipment, either after acquisition or after it has been rented, can comprise a
significant portion of our revenues and operating profit. To maximize our overall profit from the
rental, leasing, and sales of equipment, we manage our equipment pool on an on-going basis by
analyzing our product strategy for each specific equipment class in light of that equipments
historical and projected life cycle. In doing so, we must compare our estimate of potential profit
from rental with the potential profit from the products immediate sale and replacement with new or
other equipment. In our analysis, we assume depreciation and impairment of equipment based on
projected performance and historical levels, although historical trends are not necessarily
indicative of future trends. Our overall equipment management is complex, and our product strategy
can change during a products lifetime based upon numerous factors, including the U.S. and global
economy, interest rates and new product launches. Our strategic equipment decisions are generally
based on the following fundamentals:
 n
    
    Our acquisition cost;n
    
    Our estimates of current and future market demand for rentals;n
    
    Our estimates of current and future supply of product;n
    
    The book value of the product after depreciation and other impairment;n
    
    Our estimates of the effect of interest rates on rental and leasing fees as well as capital
financing; andn
    
    Our estimates of the potential current and future sale prices.
 If we do not accurately predict market trends, or if demand for the equipment we supply declines,
we can be left with inventory that we are unable to rent or sell for a profit. We assess the
carrying value of the equipment pool on a quarterly basis or when factors indicating impairment are
present.




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##### 



11
 Electro Rent 2008 Annual Report
 During the early part of the decade, our business significantly contracted due to a slow-down in
the U.S. economy. When the U.S. and global economy began to rebound in fiscal 2004, we saw
increased demand for our equipment, and were able to sell equipment that was older and more fully
depreciated. Due in part to these events, we experienced greater than normal gross margin on
equipment sales of 46% for our 2006 fiscal year and 47% for our 2007 fiscal year. As we
anticipated, our gross margin on sales in fiscal 2008 declined to 35%, reflecting increased sales
under our arrangements to act as a distributor of new T&M equipment for certain manufacturers and a
large buyout of used equipment at lower than normal margins. Based on our current equipment
management strategy, we anticipate that future gross margin on sales will stay in this range as
lower margin distribution sales continue to grow, although the gross margin percentage will
fluctuate on a quarterly basis.
 The economy in the United States and, to a certain degree the other markets in which we operate,
has been slowing, which may impact our prospects for growth and profitability in future periods.
 PROFITABILITY AND KEY BUSINESS TRENDS
 Comparing fiscal 2008 to fiscal 2007, our revenues rose by 13.9% to $144.5 million, our operating
profit increased by 5.8% to $30.7 million and our net income increased by 0.3% to $21.1 million.
Our revenue growth included growth of our base business in North America, China and Europe, as well
as our new distribution channel. T&M rental and lease activity for fiscal 2008 increased compared
to fiscal 2007, reflecting gains in the aerospace and defense, telecommunications and electronics
markets, and growth in our foreign operations. Our DP rental and lease revenue declined slightly
for the same period, reflecting competitive pressure on rental
rates.
 Some of our key profitability measurements are presented below:
 Fiscal 2008
    
    
    Fiscal 2007
    
    
    Fiscal 2006Net income per diluted common share (EPS)
    
    $
    0.81
    
    
    $
    0.81
    
    
    $
    0.86Net income as a percentage of average assets
    
    
    7.3
    %
    
    
    7.7
    %
    
    
    8.9
    %Net income as a percentage of average equity
    
    
    8.6
    %
    
    
    9.2
    %
    
    
    10.7
    %
 The increase in our operating profit reflects progress in improving the profitability of our DP
business and foreign operations, which was offset in part by competitive pressure on rental rates
and lower equipment utilization rates. In addition, fiscal 2007 included stock compensation expense
of $0.9 million due to the adoption of Statement of Financial Accounting Standards No. 123R
(revised 2004), Share-Based Payment (SFAS 123R), compared to $0.2 million for fiscal 2008.
Finally, fiscal 2007 included an equipment impairment charge of $0.4 million.
 The amount of our equipment on rent, based on acquisition cost, increased to $157.5 million at May
31, 2008 from $142.9 million at May 31, 2007. Acquisition cost of equipment on lease decreased to
$35.3 million at May 31, 2008 from $42.0 million at May 31, 2007. Utilization for our T&M equipment
pool, based on acquisition cost of equipment on rent and lease compared to the total pool, was
61.7% at May 31, 2008 compared to 66.5% at May 31, 2007. At the same dates, utilization of our DP
equipment pool decreased to 55.4% from 58.0%.
 Additionally, average monthly rental rates during fiscal 2008 as a percent of acquisition cost for
T&M and DP decreased 7.6% and 6.7%, respectively, from those during fiscal 2007 as a result of
increased competition, while average monthly T&M lease rates decreased 10.2% as a percent of
acquisition cost, and average monthly DP lease rates increased by 1.8%. In the third quarter of
fiscal 2007, we recorded a non-cash impairment charge of $0.4 million resulting from low projected
demand for certain rental products, including general purpose and communications equipment.
 STRATEGIC GROWTH PLANS
 In recent periods, we have seen some recovery of our business from its significant contraction
during the early part of this decade. Although we reduced our expenses to maintain profitability
during the contraction, we believe that our resources and financial infrastructure remain capable
of handling a significantly greater volume of business activity without a proportionate increase in
expenses. Based on this belief, we have been seeking ways to increase revenues to leverage that
infrastructure. These strategies include:




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##### 



12
 Electro Rent 2008 Annual Report
 Internal Growth Strategies: We intend to continue internal growth by building upon our vendor and
customer relationships and expanding the types of services and equipment we provide. Thus, for
example,
 n
    
    We created a new distribution channel by entering into distribution agreements with three
leading manufacturers for a range of basic T&M equipment.
 n
    
    We have re-focused our DP marketing approach to emphasize short-term, event-oriented rentals
in addition to our traditional markets.
 n
    
    We have been marketing a flexible leasing program that allows customers to build equity that
can be applied against the future purchase of the test equipment.
 n
    
    We are developing vendor leasing programs that provide customers with flexible financing
alternatives.
 Acquisition Growth Strategies: We are also seeking to grow through acquisitions. Acquisitions can
permit us to rapidly add revenues, as well as to expand into new geographical areas and/or markets.
 Geographic Expansion Strategies: Prior to fiscal 2006, our activity was largely limited to North
America, except for some limited rentals to North American companies operating in other
geographical areas. We have been expanding our rental and leasing services globally. As part of
that strategy, in fiscal 2006 we entered two of the largest world markets: Europe and China.
 n
    
    Our wholly owned subsidiary in Tianjin, China, commenced operations in June 2005 after we
received what we believe to be one of the first licenses for a wholly foreign-owned equipment
rental business in China.
 n
    
    In September 2005, we acquired a small T&M equipment rental company based in Belgium, from
which we service the European market.
 The financial results of our foreign operations have improved for fiscal 2008, compared to fiscal
2007, and our operations in both China and Europe have contributed to the growth in our operating
profit and net income.
 Although our strategic initiatives have contributed to our improved operating results for fiscal
2008 compared to fiscal 2007 and 2006, each entails risks that could impact our continuing business
results over the long term. In addition to the risks associated with our core operations, there are
special risks associated with international operations and with acquisitions, as well as with
growth in general. Recent uncertainty in the U.S. and global economy as a result of more stringent
credit requirements and access to capital may adversely affect our customers. While we have
experienced improved results since 2004 as noted above, our rental and lease utilization, operating
results and net income could be adversely affected by recent trends. For a more detailed summary of
some of the risks associated with these and other factors, please see the Risk Factors discussed in
Item 1A of our 2008 Annual Report on Form 10-K.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (generally accepted accounting principles)
requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. On a
regular basis, we review these estimates including those related to asset lives and depreciation
methods, impairment of long-lived assets including rental and lease equipment, investments,
allowance for doubtful accounts and income taxes. These estimates are based on our historical
experience and on various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or conditions. We
believe, however, that the estimates, including those for the above-listed items, are reasonable.
 We believe the following critical accounting policies affect the more significant judgments and
estimates used in the preparation of our financial statements:
 Asset Lives and Depreciation Methods: Our primary business involves the purchase and subsequent
rental and lease of long-lived electronic equipment. We have chosen asset lives that
we believe correspond to the economic lives of the related assets. We have chosen depreciation
methods that we believe match our benefit from the assets with the associated costs. These
judgments have been made based on our expertise in each equipment type that we carry. If the asset
life and depreciation method chosen do not reduce the book value of the asset to at least our
potential future cash flows from the asset, we would be required to record an impairment loss.
Depreciation methods and useful lives are periodically reviewed and revised as deemed appropriate.




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##### 



13
 Electro Rent 2008 Annual Report
 Investments: We classify our investments as available-for-sale securities based upon managements
intent with regard to the investments and the nature of the underlying securities. Our
available-for-sale investments consist of auction rate securities (ARS). Our investments are
carried at fair value with unrealized gains and losses reported in shareholders equity. Dividend
and interest income are recognized when earned. The cost of securities sold is calculated using the
specific identification method. We have the ability to hold our investments until such time as the
market value recovers or maturity. Due to the lack of availability of observable market quotes of
our investment portfolio of ARS, we utilize valuation models based on expected cash flow streams
and collateral values, including assessments of credit quality, duration, insurance wraps,
portfolio composition, discount rates and overall capital market liquidity. The valuation of our
ARS investment portfolio is subject to uncertainties that are difficult to predict. Factors that
may impact our ARS valuation include changes to credit ratings of the securities as well as to the
underlying assets supporting those securities, rates of default of the underlying assets,
underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of
market credit and liquidity. In the fourth quarter of fiscal 2008, we recorded an unrealized loss
of $1.0 million on our ARS as a temporary impairment in comprehensive income on the consolidated
statement of shareholders equity. If uncertainties in the credit markets continue, these markets
deteriorate further or we experience any additional ratings downgrades on any of our ARS, we may
incur additional market declines to our investments, which could negatively affect our financial
condition, results of operations, or cash flows (see Note 2 to our consolidated financial
statements).
 Impairment of Long-Lived Assets: On a quarterly basis, we review the carrying value of our rental
and lease equipment to determine if the carrying value of the assets may not be recoverable due to
current and forecasted economic conditions. This requires us to make estimates related to future
cash flows from the assets and to determine whether any deterioration is other than temporary. If
these estimates or the related assumptions change in the future, we may be required to record
additional impairment charges. In the third quarter of fiscal 2007, we recorded a non-cash
impairment charge of $0.4 million, resulting from low projected demand for certain rental products,
including general purpose and communications test equipment. No similar impairment charge was
recorded in fiscal 2008 or 2006.
 Allowance for Doubtful Accounts: We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of customers to pay our invoices. The estimated losses are
based on historical collection experience in conjunction with an evaluation of the current status
of the existing accounts. If the financial condition of our customers were to deteriorate,
additional allowances could be required that would reduce income. Conversely, if the financial
condition of our customers were to improve or if legal remedies to collect past due amounts were
more successful than expected, the allowance for doubtful accounts may need to be reduced and
income would be increased.
 Income Taxes: As part of the process of preparing our consolidated financial statements, we are
required to estimate income taxes in each of the jurisdictions in which we operate. Significant
judgment is required in determining the provision for income taxes and deferred tax assets and
liabilities. This process involves us estimating actual current tax exposure together with
assessing temporary differences resulting from differing treatment of items, such as depreciation
and amortization, for tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included within our consolidated balance sheet. We then assess the
likelihood that our deferred tax assets will be recovered. To the extent management believes that
recovery is not likely, we establish a valuation allowance. We determined that a valuation
allowance was required in fiscal 2007 and 2006 of $0.2 million for each year, respectively, for our
deferred tax asset related to certain foreign net operating loss carry forwards. There was no
valuation allowance required for fiscal 2008.
 Effective June 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No.
48, Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
requires that the tax effects of a position be recognized only if it is more-likely-than-not to
be sustained based solely on its technical merits as of the reporting date. The
more-likely-than-not threshold represents a positive assertion by us that our company is entitled
to the economic benefits of a tax position. If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits, no benefits of the
position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met
in each reporting period to support continued recognition of a benefit. At adoption, companies must
adjust their financial statements to reflect only those tax positions that are more-likely-than-not
to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to
retained earnings in the period of adoption and reported as a change in accounting principle.
Pursuant to our adoption of FIN 48 on June 1, 2007, we recorded a net decrease of $0.4 million to
retained earnings.




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##### 



14
 Electro Rent 2008 Annual Report
 FISCAL 2008 COMPARED WITH FISCAL 2007
 Total Revenues: Total revenues for fiscal 2008 rose $17.6 million, or 13.9%, to $144.5 million,
compared to $126.9 million for fiscal 2007. The increase in total revenues was due to an overall
5.5% increase in T&M and DP rental and lease revenues, and a 50.5% increase in sales of equipment
and other revenues.
 Rental and lease revenues in fiscal 2008 were $108.8 million, compared to $103.1 million in fiscal
2007. This increase is the result of growth in our foreign operations and higher demand for T&M
equipment in our major markets, including aerospace and defense, telecommunications and
electronics. The effect of higher demand for T&M equipment was partially offset by lower rental
rates we charged in fiscal 2008 related to increased competition.
 Sales of equipment and other revenues increased to $35.8 million in fiscal 2008 from $23.8 million
in fiscal 2007. In part, this increase reflects the results of our strategic initiative outlined
above relating to our new distribution channel, and a large buyout by a customer of used equipment
in the fourth quarter of fiscal 2008. Gross margin on sales increased to $10.8 million in fiscal
2008 as compared to $8.9 million in the prior year, while the gross margin percentage decreased to
34.8% for fiscal 2008 from 47.3% for fiscal 2007. As noted above, our gross margin percentage
decreased primarily due to an increase in our lower margin distribution sales, as well as the lower
margin in the large buyout.
 Depreciation of Rental and Lease Equipment: Depreciation of rental and lease equipment in fiscal
2008 increased to $45.0 million, or 41.4% of rental and lease revenues, from $42.2 million, or
40.9% of rental and lease revenues, in fiscal 2007. Fiscal 2007 included an equipment impairment
charge of $0.4 million. The increased depreciation expense in fiscal 2008 is due to a higher
average rental and lease equipment pool, while the increased depreciation ratio for fiscal 2008 is
due primarily to lower rental rates and utilization.
 Costs of Revenues Other Than Depreciation: Costs of revenues other than depreciation in fiscal 2008
increased 82.2% to $24.9 million from $13.7 million in fiscal 2007. Costs of revenues other than
depreciation primarily includes the cost of equipment sales, which increased as a percentage of
equipment sales to 65.2% in fiscal 2008 from 52.7% in fiscal 2007, reflecting increased
distribution sales which carry a lower margin, as well as the lower margin in the large buyout. As
noted above, our costs of revenues other than depreciation increased primarily due to an increase
in our distribution sales and the large buyout. As noted above in the Overview Section, we expect
that this number will fluctuate quarter-to-quarter, depending primarily on customer requirements
and funding and growth in our distribution channel.
 Selling, General and Administrative Expenses: Selling, general and administrative expenses
increased 4.6% to $43.9 million in fiscal 2008, as compared to $42.0 million in fiscal 2007. This
increase primarily reflects higher personnel and benefit costs to support our additional revenues.
SG&A expenses include $0.2 million of stock compensation expense for fiscal 2008 compared to $0.9
million for fiscal 2007. SG&A expenses as a percentage of total revenues decreased to 30.4% in
fiscal 2008 from 33.1% in fiscal 2007.
 Operating Profit: As a result of the increase in revenues, partly offset by the related increase in
operating expenses discussed above, operating profit increased 5.8% to $30.7 million, or 21.2% of
total revenues, in fiscal 2008 compared to an operating profit of $29.0 million, or 22.9% of total
revenues, in fiscal 2007.
 Interest Income, Net: Net interest income was $3.3 million for fiscal 2008 compared to $3.9 million
in fiscal 2007. This decrease primarily reflects decreases in prevailing money-market interest
rates and a decrease in cash and cash equivalents.
 Income from Settlements: In the third quarter of fiscal 2007, when all contingencies expired, we
recognized $1.6 million in other income relating to proceeds received from a class action lawsuit.
There was no comparable income in fiscal 2008.
 Income Tax Provision: Our effective tax rate was 37.9% for fiscal 2008, compared to 38.9% for
fiscal 2007. The decrease is due primarily to the utilization of tax loss carryforwards for our
European subsidiary, and lower tax rates on earnings from our foreign subsidiaries.
 FISCAL 2007 COMPARED WITH FISCAL 2006
 Total Revenues: Total revenues for fiscal 2007 rose $10.7 million, or 9.2%, to $126.9 million,
compared to $116.2 million in the prior year. The increase in total revenues was due to a 13.8%
overall increase in T&M and DP rental and lease revenues, which was offset by a 7.4% decrease in
sales of equipment and other revenues.




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##### 



15
 Electro Rent 2008 Annual Report
 Rental and lease revenues in fiscal 2007 were $103.1 million, compared to $90.5 million in the
prior year. This increase is the result of growth in our foreign operations and higher demand for
T&M equipment in our major markets, including aerospace and defense, telecommunications and
electronics, and the full year effect of the Rush acquisition in late fiscal 2006. The effect of
higher demand for T&M equipment was partially offset by lower rental rates we charged in fiscal
2007 related to increased competition.
 Sales of equipment and other revenues decreased to $23.8 million in fiscal 2007 from $25.7 million
in fiscal 2006. Gross margin on sales decreased to $8.9 million in fiscal 2007 as compared to $9.5
million in fiscal 2006, while the gross margin percentage increased to 47.3% for fiscal 2007 from
46.4% for fiscal 2006. The lower margin for fiscal 2006 reflected a large buyout of a lease by a
customer.
 Depreciation of Rental and Lease Equipment: Depreciation of rental and lease equipment in fiscal
2007 increased to $42.2 million, or 40.9% of rental and lease revenues, from $35.8 million, or
39.5% of rental and lease revenues, in fiscal 2006. The increased depreciation expense in fiscal
2007 reflects a higher average rental and lease equipment pool, the full year effect of the Rush
acquisition and an equipment impairment charge of $0.4 million, while the increased depreciation
ratio for fiscal 2007 is due primarily to lower rental rates.
 Costs of Revenues Other Than Depreciation: Costs of revenues other than depreciation in fiscal 2007
increased 0.7% to $13.7 million from $13.6 million in fiscal 2006. Costs of revenues other than
depreciation primarily includes the cost of equipment sales, which decreased as a percentage of
equipment sales to 52.7% in fiscal 2007 from 53.6% in fiscal 2006. As noted above in the Overview
section, we expect that this number will fluctuate quarter-to-quarter depending primarily on
customer requirements and funding and growth in our distribution channel.
 Selling, General and Administrative Expenses: Selling, general and administrative expenses
increased 19.5% to $42.0 million in fiscal 2007, as compared to $35.2 million in fiscal 2006. This
increase primarily reflects the full year effect and additional operating costs related to the Rush
acquisition and development of our new operations in China and Europe. SG&A expenses also include
$0.9 million of stock compensation expense for fiscal 2007 as a result of the adoption of SFAS 123R
in fiscal 2007; there was no comparable expense during the prior year. SG&A expenses as a
percentage of total revenues increased to 33.1% in fiscal 2007 from 30.3% in fiscal 2006.
 Operating Profit: As a result of the increases in both revenues and operating expenses discussed
above, operating profit decreased to $29.0 million, or 22.9% of total revenues, in fiscal 2007
compared to an operating profit of $31.7 million, or 27.3% of total revenues, in fiscal 2006.
 Interest Income, Net: Net interest income was $3.9 million for fiscal 2007 compared to $2.7 million
in fiscal 2006. This increase primarily reflects increases in prevailing money-market interest
rates.
 Income from Settlements: In the third quarter of fiscal 2007, when all contingencies expired, we
recognized $1.6 million in other income relating to proceeds received from a class action lawsuit.
There was no comparable income in fiscal 2006.
 Income Tax Provision: Our effective tax rate was 38.9% for fiscal 2007, compared to 35.5% for
fiscal 2006. The increase primarily reflects prior year reductions in the accrued liability for
income taxes of $1.0 million due to the expiration of specific risks related to closed tax audit
years. Additionally, in fiscal 2007 there was a decline in tax advantaged investments and
extraterritorial income exclusions of $0.6 million. Finally, a portion of our stock compensation
expense for fiscal 2007 related to incentive stock options does not give rise to a tax benefit.
 LIQUIDITY AND CAPITAL RESOURCES
 During the last three fiscal years, our primary capital requirements have been purchases of rental
and lease equipment. We generally purchase equipment throughout each year to replace equipment that
has been sold and to maintain adequate levels of rental equipment to meet existing and expected
customer demands. To meet increasing T&M rental demand, support areas of potential growth for both
T&M and DP equipment and to keep our equipment pool technologically up-to-date, we made payments
for the purchase of $81.0 million of rental and lease equipment during fiscal 2008, $74.9 million
in fiscal 2007, and $61.4 million in fiscal 2006.
 In addition to increasing our rental equipment, we have in the past purchased shares of our common
stock under an authorization from our board of directors. Shares repurchased by us are retired and
returned to the status of authorized but unissued stock.




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##### 



16
 Electro Rent 2008 Annual Report
 During the fiscal years ended May 31, 2008 and May 31, 2007, we purchased 11,740 and 224,600 shares
of our common stock for $0.2 million and $3.0 million, respectively, at an average price of $12.96
and $13.19 per share, respectively. As of May 31, 2008, 946,000 shares of our common stock remain
authorized for repurchase.
 In April 2007, our board of directors authorized a regular quarterly cash dividend of $0.10 per
common share. We commenced payment of our quarterly cash dividend in July 2007. In January 2008,
our board of directors approved an increase to $0.15 per common share. For the fiscal year ended
May 31, 2008, we paid dividends of $11.7 million. There was no dividend paid in fiscal 2007.
 We expect to continue paying a quarterly dividend in future quarters, although the amount and
timing of dividends, if any, will be made at the discretion of our board of directors in each
quarter, subject to compliance with applicable law.
 Dividend and Repurchase Summary
 Fiscal Year Ended May 31,
    
    Three Year(in thousands, except per share information)
    
    2008
    
    
    2007
    
    
    2006
    
    
    TotalsCash dividends paid
    
    $
    11,659
    
    
    $
    
    
    
    $
    
    
    
    $
    11,659Shares repurchased
    
    
    12
    
    
    
    225
    
    
    
    
    
    
    
    237Average price per share
    
    $
    12.96
    
    
    $
    13.19
    
    
    $
    
    
    
    $
    13.18Aggregate purchase price
    
    $
    152
    
    
    $
    2,962
    
    
    $
    
    
    
    $
    3,114Total cash returned to shareholders
    
    $
    11,811
    
    
    $
    2,962
    
    
    $
    
    
    
    $
    14,773
 For the past three fiscal years, the total of our cash, cash equivalents and investments has
remained relatively stable. We expect that the level of our cash and cash equivalents may decrease
as we pay dividends in future quarters, or decide to buy back additional shares of our common
stock, increase equipment purchases in response to demand, finance another acquisition, or pursue
other opportunities. We have invested our cash balance in money market funds and auction rate
securities.
 At May 31, 2008, we held $23.6 million, at cost, in auction rate securities (ARS), which we
classify as investments available-for-sale. Our ARS are long-term debt instruments backed by
student loans, a substantial portion of which are guaranteed by the United States government. All
of our ARS have credit ratings of AAA or AA, and none are mortgage-backed debt obligations.
Historically, our ARS were highly liquid, using a Dutch auction process that resets the applicable
interest rate at predetermined intervals, typically every 35 days, to provide liquidity at par.
However, as a result of liquidity issues in the global credit and capital markets, the auctions for
all of our ARS failed beginning in February 2008 when sell orders exceeded buy orders. The failures
of these auctions do not affect the value of the collateral underlying the ARS, and we continue to
earn and receive interest on our ARS at a predetermined formula with spreads tied to particular
interest rate indexes. We value the ARS from quotes received from our broker which are derived from
their internally developed model. In determining a fair value for each ARS, the model weighted
various factors, including assessments of credit quality, duration, insurance wraps, portfolio
composition, discount rates, overall capital market liquidity and comparable securities, if any. We
consider declines in ARS fair market values due to lack of liquidity to be a temporary impairment
that is recorded as an unrealized loss in the shareholders equity section of our balance sheet.
However, we will not be able to liquidate our ARS until the issuer calls the security, a successful
auction occurs, a buyer is found outside of the auction process or the security matures. In any
case, given the approximately $51.0 million we hold in cash and cash equivalents, primarily U.S.
Treasury money market funds, and our lack of bank debt, we expect to continue to finance our
operations even if our ARS were to be illiquid for an extended period of time.
 The acquisition cost of our rental and lease equipment portfolio at May 31, 2008 totaled $333.7
million, increasing $31.7 million from the prior year end. During the three years ended May 31,
2008, we made payments for equipment purchases totaling $217.2 million, and recorded an aggregate
increase in the acquisition cost of our equipment portfolio, net of the liquidation of used
equipment, of $77.7 million. We have three principal sources of liquidity: cash flows provided by
our operating activities, proceeds from the sale of equipment from our portfolio, and external
funds that historically have been provided by bank borrowings.
 During fiscal 2008, 2007 and 2006, net cash provided by operating activities was $54.2 million,
$53.7 million, and $47.8 million, respectively. This increase is largely the result of higher
depreciation and amortization in fiscal 2008 as compared to fiscal 2007 and 2006, and a $3.2
million increase in accrued expenses for fiscal 2008 compared to an increase of $0.8 million in
fiscal 2007 and a decrease of $1.3 million in fiscal 2006. This increased operating cash flow was
partially offset by an increase in accounts receivable of $6.0 million for fiscal 2008 compared to
an increase of $1.6 million and $1.5 million, respectively, for fiscal 2007 and 2006.




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##### 



17
 Electro Rent 2008 Annual Report
 During fiscal 2008, 2007 and 2006, net cash used in investing activities was $50.3 million, $57.7
million and $24.7 million, respectively. Fiscal 2008 includes $81.0 million related to payments for
the purchase of rental and lease equipment, compared to $74.9 million and $61.4 million for fiscal
2007 and 2006, respectively. This increase was partially offset by proceeds from sale of rental and
lease equipment of $31.1 million, $18.8 million and $20.5 million for fiscal 2008, 2007, and 2006,
respectively. Fiscal 2006 included $26.6 million for the redemption of investments and $9.4 million
in cash paid for the Rush acquisition, net of acquired cash.
 Net cash flows used in financing activities was $10.3 million in fiscal 2008, compared to net cash
provided by financing activities of $2.3 million and $3.7 million in fiscal 2007 and 2006,
respectively. The decline in fiscal 2008 is primarily due to $11.7 million in dividend payments to
shareholders. There were no dividends paid in the prior fiscal years. Proceeds from issuance of
common stock was $1.4 million, $4.3 million and $3.8 million, respectively, for fiscal 2008, 2007
and 2006. Fiscal 2008 and 2007 include the repurchase of $0.2 million and $3.0 million of our
common stock, respectively, offset by $0.2 and $0.9 million of tax benefit for stock options
exercised, respectively. The fiscal 2006 tax benefit for stock options exercised was included in
net cash provided by operating activities.
 As the following table illustrates, aggregate cash flows from operating activities and proceeds
from the sale of equipment have been more than sufficient to fund our operations during the last
three fiscal years.
 Three Years Ended(in thousands)
    
    May 31, 2008
    
    
    2008
    
    
    2007
    
    
    2006Cash flows from operating activities1
    
    $
    155,701
    
    
    $
    54,178
    
    
    $
    53,680
    
    
    $
    47,843Proceeds from sale of equipment
    
    
    70,435
    
    
    
    31,137
    
    
    
    18,786
    
    
    
    20,512Total
    
    
    226,136
    
    
    
    85,315
    
    
    
    72,466
    
    
    
    68,355Payments for equipment purchases
    
    
    (217,222
    )
    
    
    (80,976
    )
    
    
    (74,894
    )
    
    
    (61,352
    )Net increase in equipment portfolio at acquisition cost
    
    
    77,687
    
    
    
    31,685
    
    
    
    39,649
    
    
    
    6,353
 1
    
    For the components of cash flows from operating activities see the Consolidated
Statements of Cash Flows.
 As indicated by the table, cash flows from operating activities and proceeds from sale of equipment
provided 104% of the funds required for equipment purchased during the three-year period ended May
31, 2008. We believe that cash and cash equivalents, cash flows from operating activities, proceeds
from the sale of equipment and our borrowing capacity will be sufficient to fund our operations for
at least the next twelve months.
 We have a $10.0 million revolving line of credit with an institutional lender, subject to certain
restrictions, to meet equipment acquisition needs as well as working capital and general corporate
requirements. We had no bank borrowings outstanding or off balance sheet financing arrangements at
May 31, 2008.
 We lease certain facilities under various operating leases. Most of the lease agreements provide us
with the option of renewing the lease at the end of the initial lease term, at the fair rental
value, for periods of up to five years. In most cases, we expect that facility leases will be
renewed or replaced by other leases in the normal course of business.
 Inflation generally has favorably influenced our results of operations by enhancing the sale prices
of our used equipment. However, lower inflation rates and the continued availability of newer, less
expensive equipment with similar or better specifications over a period of several years could
result in lower relative sale prices for used electronic equipment. If this should occur, our
margins and earnings will be reduced. Prices of new and used electronic test equipment have not
consistently followed the overall inflation rate, while prices of new and used personal computers
and servers have consistently declined. Because we are unable to predict the advances in technology
and the rate of inflation for the next several years, it is not possible to estimate the impact of
these factors on our margins and earnings.




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##### 



18
 Electro Rent 2008 Annual Report
 CONTRACTUAL OBLIGATIONS
 The table below presents the amount of payments due under our contractual obligations. The table
reflects expected payments due as of May 31, 2008 and does not reflect changes that could arise
after that time.
 Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations (in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFacility lease payments, not including property taxes
and insurance
    
    $
    1,618
    
    
    $
    764
    
    
    $
    739
    
    
    $
    92
    
    
    $
    23Total
    
    $
    1,618
    
    
    $
    764
    
    
    $
    739
    
    
    $
    92
    
    
    $
    23
 The exact timing of reversal or settlement of our FIN 48 liabilities of $4.3 million could not be
reasonably estimated at the end of the current fiscal year.
 Off-Balance Sheet Arrangements
 As of May 31, 2008, we are not involved in any off-balance sheet arrangements, as defined in Item
303 (a)(4)(ii) of SEC Regulation S-K.
 SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
 This Report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You
can find many (but not all) of these statements by looking for words such as approximates,
believes, expects, anticipates, estimates, intends, plans, would, may or other
similar expressions in this Report. We claim the protection of the safe harbor contained in the
Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking
statements presented in this Report, or those which we may make orally or in writing from time to
time, are based on the beliefs of, assumptions made by, and information currently available to us.
Such statements are based on assumptions and the actual outcome will be affected by known and
unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict.
Although we believe that our assumptions are reasonable, they are not guarantees of future
performance and some will inevitably prove to be incorrect. As a result, our actual future results
can be expected to differ from our expectations, and those differences may be material.
Accordingly, investors should use caution in relying on past forward-looking statements, which are
based on known results and trends at the time they are made, to anticipate future results or
trends.
 Some of the risks and uncertainties that may cause our actual results, performance or achievements
to differ materially from those expressed or implied by forward-looking statements include the
following: common stock price fluctuations, fluctuations in operating results, risks associated
with technology changes, risks associated with customer solvency, competition, risks associated
with international operations, risks associated with our manufacturers and suppliers, dependence on
key personnel, control by management and others, risks associated with possible acquisitions and
new business ventures, risks associated with fluctuating interest rates and anti-takeover
provisions. For further discussion of these and other factors, see the sections contained in this
Annual Report entitled Managements Discussion and Analysis of Financial Condition and Results of
Operations; Item 1A Risk Factors and Item 7A Quantitative and Qualitative Disclosure About
Interest Rates and Currency Rates, in our 2008 Annual Report on Form 10-K ; our Proxy Statement for
our 2008 Annual Meeting of Shareholders; and our other filings with the Securities and Exchange
Commission.
 This Report and all subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect events or circumstances after
the date of this Report.




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##### 



19
 Electro Rent 2008 Annual Report
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended May 31,(in thousands, except per share information)
    
    2008
    
    
    
    2007
    
    
    2006Revenues:Rentals and leases
    
    $
    108,761
    
    
    
    $
    103,083
    
    
    $
    90,548Sales of equipment and other revenues
    
    
    35,775
    
    
    
    
    23,776
    
    
    
    25,664Total revenues
    
    
    144,536
    
    
    
    
    126,859
    
    
    
    116,212Operating expenses:Depreciation of rental and lease equipment
    
    
    44,987
    
    
    
    
    42,174
    
    
    
    35,776Costs of revenues other than depreciation of rental and lease equipment
    
    
    24,914
    
    
    
    
    13,674
    
    
    
    13,574Selling, general and administrative expenses
    
    
    43,940
    
    
    
    
    42,000
    
    
    
    35,161Total operating expenses
    
    
    113,841
    
    
    
    
    97,848
    
    
    
    84,511Operating profit
    
    
    30,695
    
    
    
    
    29,011
    
    
    
    31,701Interest income, net
    
    
    3,292
    
    
    
    
    3,869
    
    
    
    2,705Income from settlement
    
    
    
    
    
    
    
    1,571
    
    
    
    Income before income taxes
    
    
    33,987
    
    
    
    
    34,451
    
    
    
    34,406Income tax provision
    
    
    12,883
    
    
    
    
    13,402
    
    
    
    12,222Net income
    
    $
    21,104
    
    
    
    $
    21,049
    
    
    $
    22,184Earnings per share:Basic
    
    $
    0.81
    
    
    
    $
    0.82
    
    
    $
    0.87Diluted
    
    $
    0.81
    
    
    
    $
    0.81
    
    
    $
    0.86Shares used in per share calculation:Basic
    
    
    25,910
    
    
    
    
    25,716
    
    
    
    25,359Diluted
    
    
    26,079
    
    
    
    
    26,053
    
    
    
    25,762




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##### 



20
 Electro Rent 2008 Annual Report
 CONSOLIDATED BALANCE SHEETS
 As of May 31,(in thousands, except share information)
    
    2008
    
    
    
    2007AssetsCash and cash equivalents
    
    $
    50,964
    
    
    
    $
    57,172Investments available-for-sale, at
fair value (cost of $23,600 and $23,550)
    
    
    22,601
    
    
    
    
    23,550Accounts receivable, net of allowance for doubtful
accounts of $359 and $251
    
    
    23,128
    
    
    
    
    17,161Rental and lease equipment, net of
accumulated depreciation of
$161,187 and $140,164
    
    
    172,468
    
    
    
    
    161,806Other property, net of accumulated depreciation
and amortization of $14,427 and $13,761
    
    
    14,341
    
    
    
    
    14,990Goodwill
    
    
    3,109
    
    
    
    
    2,859Intangibles, net of amortization
of $1,406 and $904
    
    
    1,069
    
    
    
    
    1,571Other
    
    
    5,402
    
    
    
    
    5,710$
    293,082
    
    
    
    $
    284,819Liabilities and Shareholders
EquityLiabilities:Accounts payable
    
    $
    4,562
    
    
    
    $
    10,084Accrued expenses
    
    
    12,565
    
    
    
    
    11,019Deferred revenue
    
    
    4,943
    
    
    
    
    5,047Deferred tax liability
    
    
    14,904
    
    
    
    
    15,190Total liabilities
    
    
    36,974
    
    
    
    
    41,340Commitments and contingencies
(Note 12)Shareholders equity:Preferred stock, $1 par 
shares authorized 1,000,000;
none issuedCommon stock, no par  shares authorized
40,000,000; issued and outstanding
2008  25,945,283; 2007 
25,812,943
    
    
    33,938
    
    
    
    
    32,212Accumulated other comprehensive
loss, net of tax
    
    
    (619
    )
    
    
    
    Retained earnings
    
    
    222,789
    
    
    
    
    211,267Total shareholders equity
    
    
    256,108
    
    
    
    
    243,479$
    293,082
    
    
    
    $
    284,819




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##### 



21
 Electro Rent 2008 Annual Report
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Other
    
    
    
    
    
    
    TotalThree years ended May 31, 2008
    
    Number
    
    
    
    
    
    
    Comprehensive
    
    
    Retained
    
    
    Shareholders(in thousands)
    
    of Shares
    
    
    Amount
    
    
    Loss
    
    
    Earnings
    
    
    EquityBalance, June 1, 2005
    
    
    25,101
    
    
    $
    21,638
    
    
    $
    
    
    
    $
    173,379
    
    
    $
    195,017Exercise of stock options
    
    
    453
    
    
    
    3,816
    
    
    
    
    
    
    
    
    
    
    
    3,816Tax benefit for stock
options exercised
    
    
    
    
    
    
    907
    
    
    
    
    
    
    
    
    
    
    
    907Repurchase of common stock
    
    
    (7
    )
    
    
    (10
    )
    
    
    
    
    
    
    (73
    )
    
    
    (83
    )Net income for the year
ended May 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,184
    
    
    
    22,184Balance, May 31, 2006
    
    
    25,547
    
    
    
    26,351
    
    
    
    
    
    
    
    195,490
    
    
    
    221,841Exercise of stock options
    
    
    491
    
    
    
    4,339
    
    
    
    
    
    
    
    
    
    
    
    4,339Tax benefit for stock
options exercised
    
    
    
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    942Non-cash stock compensation
    
    
    
    
    
    
    850
    
    
    
    
    
    
    
    
    
    
    
    850Repurchase of common stock
    
    
    (225
    )
    
    
    (270
    )
    
    
    
    
    
    
    (2,692
    )
    
    
    (2,962
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,580
    )
    
    
    (2,580
    )Net income for the year
ended May 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,049
    
    
    
    21,049Balance, May 31, 2007
    
    
    25,813
    
    
    
    32,212
    
    
    
    
    
    
    
    211,267
    
    
    
    243,479Exercise of stock options
    
    
    144
    
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    1,366Tax benefit for stock
options exercised
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Non-cash stock compensation
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Repurchase of common stock
    
    
    (12
    )
    
    
    (15
    )
    
    
    
    
    
    
    (137
    )
    
    
    (152
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,079
    )
    
    
    (9,079
    )Cumulative effect of
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )
    
    
    (366
    )Components of other
comprehensive income:Unrealized losses on
investments
available-for-sale,
net of $380 of tax
benefit
    
    
    
    
    
    
    
    
    
    
    (619
    )
    
    
    
    
    
    
    (619
    )Net income for the
year ended May 31,
2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,104
    
    
    
    21,104Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,485Balance, May 31, 2008
    
    
    25,945
    
    
    $
    33,938
    
    
    $
    (619
    )
    
    $
    222,789
    
    
    $
    256,108




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##### 



22
 Electro Rent 2008 Annual Report
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended May 31,(in thousands)
    
    2008
    
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    21,104
    
    
    
    $
    21,049
    
    
    $
    22,184Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    46,535
    
    
    
    
    43,381
    
    
    
    36,956Remeasurement gain
    
    
    (440
    )
    
    
    
    (150
    )
    
    
    (25
    )Gain on sale of rental and lease equipment
    
    
    (10,830
    )
    
    
    
    (8,891
    )
    
    
    (9,526
    )Impairment loss on rental equipment
    
    
    
    
    
    
    
    440
    
    
    
    Deferred tax liability
    
    
    530
    
    
    
    
    591
    
    
    
    947Stock compensation expense
    
    
    200
    
    
    
    
    850
    
    
    
    Provision (recapture) for losses on accounts receivable
    
    
    425
    
    
    
    
    (231
    )
    
    
    46Tax benefit for stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    907Excess tax benefit for stock options exercised
    
    
    (175
    )
    
    
    
    (942
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,995
    )
    
    
    
    (1,586
    )
    
    
    (1,534
    )Other assets
    
    
    312
    
    
    
    
    (1,371
    )
    
    
    (986
    )Accounts payable
    
    
    (539
    )
    
    
    
    (709
    )
    
    
    23Accrued expenses
    
    
    3,186
    
    
    
    
    764
    
    
    
    (1,311
    )Deferred revenue
    
    
    (135
    )
    
    
    
    485
    
    
    
    162Net cash provided by operating activities
    
    
    54,178
    
    
    
    
    53,680
    
    
    
    47,843Cash flows from investing activities:Proceeds from sale of rental and lease equipment
    
    
    31,137
    
    
    
    
    18,786
    
    
    
    20,512Cash paid for acquisition, net of cash acquired
    
    
    
    
    
    
    
    (257
    )
    
    
    (9,404
    )Payments for purchase of rental and lease equipment
    
    
    (80,975
    )
    
    
    
    (74,894
    )
    
    
    (61,352
    )Purchases of investments
    
    
    (3,500
    )
    
    
    
    (800
    )
    
    
    (550
    )Redemptions of investments
    
    
    3,450
    
    
    
    
    
    
    
    
    26,600Payments for purchase of other property
    
    
    (398
    )
    
    
    
    (498
    )
    
    
    (531
    )Net cash used in investing activities
    
    
    (50,286
    )
    
    
    
    (57,663
    )
    
    
    (24,725
    )Cash flows from financing activities:Excess tax benefit for stock options exercised
    
    
    175
    
    
    
    
    942
    
    
    
    Proceeds from issuance of common stock
    
    
    1,366
    
    
    
    
    4,339
    
    
    
    3,816Payment for repurchase of common stock
    
    
    (152
    )
    
    
    
    (2,962
    )
    
    
    (83
    )Payment of dividends
    
    
    (11,659
    )
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (10,270
    )
    
    
    
    2,319
    
    
    
    3,733Net (decrease) increase in cash and cash equivalents
    
    
    (6,378
    )
    
    
    
    (1,664
    )
    
    
    26,851Effect of exchange rate changes on cash
    
    
    170
    
    
    
    
    88
    
    
    
    (100
    )Cash and cash equivalents at beginning of year
    
    
    57,172
    
    
    
    
    58,748
    
    
    
    31,997Cash and cash equivalents at end of year
    
    $
    50,964
    
    
    
    $
    57,172
    
    
    $
    58,748




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##### 



23
 Electro Rent 2008 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation: The consolidated financial statements include Electro Rent Corporation and
its wholly owned subsidiaries (collectively we, us, or our hereafter). All intercompany
balances and transactions have been eliminated in consolidation.
 Business and Organization: We primarily engage in the short-term rental and the lease of
state-of-the-art electronic equipment. We maintain an equipment portfolio composed primarily of
test and measurement instruments (T&M) and personal computers and related data products (DP)
purchased from leading manufacturers. Another aspect of our business is the sale of equipment after
its utilization for rental or lease and the distribution of a range of basic T&M equipment. We
conduct our business activities in the United States and our wholly owned subsidiaries, Genstar
Rental Electronics, Inc., Electro Rent Europe, NV, and Electro Rent (Tianjin) Rental Co., Ltd.
conduct all of these business activities in Canada, Europe and China, respectively. Our wholly
owned subsidiary, Electro Rent Asia, Inc., is the U.S. parent company of Electro Rent (Tianjin)
Rental Co., Ltd. and our wholly owned subsidiary, ER International, Inc., is the U.S. parent
company of Electro Rent Europe, NV.
 Use of Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities as well as the disclosures of contingent
assets and liabilities as of the date of these financial statements and the reported amounts of
revenues and expenses during the reporting period. On a regular basis, we review these estimates
including those related to asset lives and depreciation methods, impairment of long-lived assets
including rental and lease equipment and intangibles, investments, allowance for doubtful accounts,
and contingencies and litigation. These estimates are based on our evaluation of current business
and economic conditions, historical experience and on various other assumptions believed to be
reasonable under the circumstances. Actual results may differ from these estimates under different
assumptions or conditions. We believe, however, that our estimates, including those for the
above-listed items, are reasonable.
 Revenue Recognition: Rental and lease revenues are recognized in the month they are due on the
accrual basis of accounting. Rentals and leases are primarily billed to customers in advance, and
unearned billings are recorded as deferred revenue. Other revenues consist of billings to customers
for equipment sales, delivery, or repairs. Those revenues are recognized in the period in which the
respective equipment is shipped and risk of loss is passed to the customer or the period in which
the services are performed. In the case of equipment which is sold to customers that is already on
rent or lease to the same party, revenue is recognized at the agreed-upon date when the rent or
lease term ends. Negotiated lease early-termination charges are recognized upon receipt. Interest
income on cash equivalents and investments is recognized in the period earned.
 In accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs, delivery and
handling revenues are recorded as revenues and the related expenses are recorded in selling,
general and administrative expenses. Amounts of $1.6 million and $1.4 million, respectively, for
fiscal 2007 and 2006 have been corrected to properly state sales of equipment and other revenues
and selling, general and administrative expenses in accordance with this policy. Management
believes the correction is immaterial to the consolidated statements of operations.
 Rental and Lease Equipment and Other Property: Assets are generally stated at cost, less
accumulated depreciation. Upon retirement or disposal of assets, the cost and the related
accumulated depreciation are eliminated from the accounts and any gain or loss is recognized.
Depreciation of rental and lease equipment and other property is computed using straight-line and
accelerated methods over the estimated useful lives of the respective equipment. Generally, new
rental and lease equipment is depreciated over three to ten years, and used equipment over two to
nine years, depending on the type of equipment. Depreciation methods and useful lives are
periodically reviewed and revised, as deemed appropriate. Normal maintenance and repairs are
expensed as incurred. Rental and lease equipment at net book value comprised $161.7 million of T&M
equipment and $10.8 million of DP equipment at May 31, 2008 and $149.7 million of T&M equipment and
$12.1 million of DP equipment at May 31, 2007.
 Income Taxes: We recognize a liability or asset for the deferred tax consequences of temporary
differences between the tax basis of assets and liabilities and their reported amounts in the
financial statements. These temporary differences will result in taxable or




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24
 Electro Rent 2008 Annual Report
 deductible amounts in future years when reported amounts of the assets or liabilities are recovered
or settled. The deferred tax assets are periodically reviewed for recoverability.
 Effective June 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No.
48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 requires that the tax effects of a position be recognized only if it is
more-likely-than-not to be sustained based solely on its technical merits as of the reporting
date. The more-likely-than-not threshold represents a positive assertion by us that our company is
entitled to the economic benefits of a tax position. If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits, no benefits of the
position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met
in each reporting period to support continued recognition of a benefit. At adoption, companies must
adjust their financial statements to reflect only those tax positions that are more-likely-than-not
to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to
retained earnings in the period of adoption and reported as a change in accounting principle.
Pursuant to our adoption of FIN 48 on June 1, 2007, we recorded a net decrease of $366 to retained
earnings.
 We recognize interest and penalties with respect to uncertain tax positions as components of our
income tax provision. Accrued interest and penalties are included within the related tax liability
line in the consolidated balance sheet.
 Fair Value of Financial Instruments: We believe that the carrying amount of cash and cash
equivalents, accounts receivable and accounts payable approximates fair value due to the short
maturity of these instruments.
 Impairment of Assets: The carrying value of equipment held for rental and lease is assessed
quarterly or when factors indicating impairment are present. We recognize impairment losses on
equipment held for rental and lease when the expected future undis-counted cash flows are less than
the assets carrying value, in which case the asset is written down to its estimated fair value. In
the third quarter of fiscal 2007 we recorded a non-cash impairment charge of $440 resulting from
low projected demand for certain rental products, including general purpose and communications
equipment. There were no other such impairment charges during fiscal 2008 and 2006.
 Goodwill and Other Intangible Assets: We have goodwill, which represents the excess of purchase
price over the fair value of net assets acquired, as a result of the Rush Computer Rentals, Inc.
acquisition discussed further in Note 3. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized and is
reviewed for impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below its carrying value.
This acquisition also resulted in certain identifiable intangible assets, which represent items
such as customer relationships, non-compete agreements and a trade name. These intangible assets,
with the exception of the trade name, are amortized over their projected useful lives and are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Impairment of goodwill and identifiable intangible assets is
permanently recognized by writing down the asset to the extent that the carrying value exceeds the
estimated fair value.
 Cash and Cash Equivalents: We consider highly liquid investments with maturities of three months or
less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of
AAA-rated money market funds in all periods presented.
 Investments: We consider our investments of long-term debt instruments as available-for-sale as
defined in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and,
accordingly, they are carried at fair value. Except for direct obligations of the United States
government, securities issued by agencies of the United States government, and money market or cash
management funds, we diversify our investments by limiting our holdings with any individual issuer.
Our investments consist of auction rate securities (ARS). We record unrealized gains and losses
on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income in
the shareholders equity section of our balance sheets. Realized gains and losses and declines in
value considered to be other than temporary are included in income in the period they occur. The
cost of securities sold is based on the specific identification method. (See Note 2 for further
discussion).
 Allowance for Doubtful Accounts: We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of customers to make rental and lease payments. The estimated
losses are based on historical collection experience in conjunction with an evaluation of the
current status of the existing accounts. If the financial condition of our customers were to
deteriorate, additional allowances could be required that would reduce income. Conversely, if the
financial condition of our customers were to improve or if legal remedies to collect past due
amounts were more successful than expected, the allowance for doubtful accounts may need to be
reduced and income would be increased.




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25
 Electro Rent 2008 Annual Report
 Shareholders Equity: During the fiscal year ended May 31, 2008, we purchased 11,740 shares of our
common stock for $152, an average of $12.96 per share, compared to fiscal year ended May 31, 2007,
when we purchased 224,600 shares for $3.0 million, an average of $13.19 per share. As of May 31,
2008, 946,000 shares of our common stock remain authorized for repurchase.
 Concentration of Credit Risk: Financial instruments that potentially expose us to concentration of
credit risk consist primarily of cash equivalents, investments and trade accounts receivable. We
invest excess cash primarily in money market funds of major financial institutions and auction rate
securities. Excess cash of $46.7 million was invested in three large money market funds and $23.6
million, at cost, was invested in student loan-backed obligations as of May 31, 2008 (see Note 2
for further discussion). We believe that we are not exposed to any significant financial risk with
respect to cash. For trade accounts receivable, we sell primarily on 30-day terms, perform credit
evaluation procedures on each customers individual transactions and require security deposits or
personal guarantees from our customers when significant credit risks are identified. Typically,
most customers are large, established firms. We seek to maintain an adequate allowance for
potential credit losses.
 We purchase rental and lease equipment from numerous vendors. During fiscal 2008, 2007 and 2006,
Agilent Technologies, Inc. accounted for approximately 58%, 59% and 54%, respectively of such
purchases. No other vendor accounted for more than 10% of such purchases.
 Foreign Currency: The assets and liabilities of our foreign subsidiaries are remeasured from their
foreign currency to U.S. dollars at current or historic exchange rates, as appropriate. The U.S.
dollar has been determined to be the functional currency. Revenues and expenses are remeasured from
their foreign currencies to U.S. dollars using historic rates or an average monthly rate, as
appropriate, for the month in which the transaction occurred. Our foreign subsidiaries individually
have assets, liabilities, revenues and expenses under 10% of our respective consolidated amounts.
The euro, Canadian dollar and Chinese yuan are the only foreign currencies.
 Foreign currency transaction gains and losses are included in the determination of net income.
Included in consolidated net income are net foreign currency transaction gains of $440, $150, and
$25 realized during fiscal 2008, 2007, and 2006, respectively.
 Net Income Per Common and Common Equivalent Share: Basic earnings per share (EPS) is computed as
net income divided by the weighted average number of shares of common stock outstanding for the
reported year, excluding the dilutive effects of stock options and other potentially dilutive
securities. Diluted EPS is computed as net income divided by the weighted average number of shares
outstanding of common stock and common stock equivalents for the reported year. Common stock
equivalents result from the dilutive stock options computed using the treasury stock method.
 Cash Flow: Supplemental disclosures of cash paid during the year for:
 2008
    
    
    2007
    
    
    2006Interest
    
    $
    13
    
    
    $
    24
    
    
    $
    24Income taxes
    
    
    8,529
    
    
    
    11,730
    
    
    
    11,709
 Supplemental Disclosure of Non-Cash Investing and Financing Activities: We had accounts payable and
other accruals related to acquired equipment totaling $3.8 million, $8.8 million and $9.4 million,
at May 31, 2008, 2007 and 2006, respectively, which amounts were paid in the following years. We
recorded a tax benefit of $175, $942, and $907 in fiscal 2008, 2007 and 2006, respectively, for
employee stock options exercised which increased the outstanding common stock. We decreased
shareholders equity by $619, net of tax benefit of $380, as a result of unrealized losses on
investments in fiscal 2008. We recorded $2.6 million of dividends declared and not yet paid as
accrued expenses and a reduction of retained earnings in fiscal 2007. There was no accrual in
fiscal 2008.
 Stock-Based Compensation: On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment,
(SFAS 123R) requiring all share-based payments to employees, including grants of employee stock
options, to be recognized as compensation expense in the consolidated financial statements based on
their fair values. Compensation cost is recognized over the period that an employee provides
service in exchange for the award. We adopted SFAS 123R as of June 1, 2006.
 We adopted SFAS 123R using the modified prospective method. Under this transition method, awards
that are granted, modified, or settled after the date of adoption are measured and accounted for in
accordance with SFAS 123R. Estimated compensation for the unvested portion of grants that were
outstanding as of the effective date are recognized over the remaining service period using the
compensation cost estimated for the SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
123), pro forma disclosures.




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26
 Electro Rent 2008 Annual Report
 We recorded $200 and $850 of stock-based compensation for fiscal 2008 and 2007, respectively, as
part of selling, general and administrative expenses in accordance with SFAS 123R. This
compensation cost caused net income to decrease by $154 and $687 for the years ended May 31, 2008
and 2007, respectively, and did not have a material impact on basic or diluted earnings per share.
 We receive a tax deduction for certain stock option exercises during the period the options are
exercised, generally for the excess of the fair value of stock at the date of exercise over the
exercise price of the options. Prior to the adoption of SFAS 123R, we presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the statements of cash
flows. SFAS 123R requires subsequent cash flows resulting from excess tax benefits to be classified
as part of cash flows from financing activities. Excess tax benefits are realized tax benefits from
tax deductions for exercised options in excess of the deferred tax asset attributable to stock
compensation costs for such options. The total tax benefit realized from stock option exercises for
fiscal 2008, 2007 and 2006 was $175, $942 and $907, respectively. Cash received from stock option
exercises was $1.4 million, $4.3 million and $3.8 million for fiscal 2008, 2007 and 2006,
respectively.
 Prior to June 1, 2006, we applied the intrinsic-value-based method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
employee stock options and provided pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value-based method, defined in SFAS 123
(as amended by SFAS No. 148), had been applied.
 The following table shows, on a pro forma basis, the effect on net income and earnings per share
for the fiscal year ended May 31, 2006 had compensation cost for the stock-based compensation plans
been determined based upon the fair value at grant in accordance with SFAS 123R:
 2006Net income, as reported
    
    $
    22,184Deduct: Total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax effects
    
    
    (767
    )Pro forma net income
    
    $
    21,417Earnings per share:Basic earnings per share:As reported
    
    $
    0.87Pro forma
    
    $
    0.84Diluted earnings per share:As reported
    
    $
    0.86Pro forma
    
    $
    0.83
 Recent Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements about fair value measurements. This Statement is
effective for fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. We will be required to adopt the provisions of SFAS 157 beginning with our first
quarter of fiscal 2009. The adoption of SFAS 157 will not have a material impact on our financial
condition, results of operations, or cash flows.
 In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). This Statement permits entities to choose to measure many
financial assets and financial liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings. SFAS 159 is effective for
fiscal years beginning after November 15, 2007. We will be required to adopt the provisions of SFAS
159 beginning with our first quarter of fiscal 2009. We do not anticipate the adoption of SFAS 159
will have a material effect on our financial condition, results of operations, or cash flows.
 In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141R). SFAS 141R
replaces SFAS No. 141, Business Combinations, and provides greater consistency in the accounting
and financial reporting of business combinations. SFAS 141R requires that the acquiring entity in a
business combination recognize all assets acquired and liabilities assumed in the transaction,
establishes the acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, establishes principles and requirements for how an acquirer recognizes and
measures any non-controlling interest in the acquiree




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27
 Electro Rent 2008 Annual Report
 and the goodwill acquired, and requires the acquirer to disclose the nature and financial effect of
the business combination. Among other changes, this statement also requires that negative
goodwill be recognized in earnings as a gain attributable to the acquisition, that
acquisition-related costs are to be recognized separately from the acquisition and expensed as
incurred and that any deferred tax benefits resulting from a business combination be recognized in
income from continuing operations in the period of the combination or directly in contributed
capital, depending on the circumstances. SFAS 141R is effective for fiscal years beginning on or
after December 15, 2008. We will be required to adopt the provisions of SFAS 141R beginning with
our first quarter of fiscal 2010. We do not anticipate that the adoption of SFAS 141R will have a
material effect on our financial condition, results of operations, or cash flows.
 In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements (SFAS 160). SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial
Statements, to establish accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SFAS 160 also changes the way the
consolidated income statement is presented by requiring consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the non-controlling interest.
It also requires disclosure, on the face of the consolidated statement of income, of the amounts of
consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160
requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated
and requires expanded disclosures in the consolidated financial statements that clearly identify
and distinguish between the interests of the parent owners and the interests of the non-controlling
owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those
fiscal years, beginning on or after December 15, 2008. We will be required to adopt the provisions
of SFAS 160 beginning with our first quarter of fiscal 2010. We do not anticipate that the adoption
of SFAS No. 160 will have a material effect on our financial condition, results of operations, or
cash flows.
 In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires entities to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments and that
the objectives for using derivative instruments be disclosed in terms of underlying risk and
accounting designation, (b) how derivative instruments and related hedged items are accounted for
under SFAS 133, Accounting for Derivative Instruments and Hedging Activities and its related
interpretations, including a tabular format disclosure of the fair values of derivative instruments
and their gains and losses and (c) how derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. SFAS 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. We will be required to adopt the provisions of
SFAS 161 beginning with our first quarter of fiscal 2009. We do not anticipate that the adoption of
SFAS No. 161 will have a material effect on our financial condition, results of operations, or cash
flows.
 In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110, Share-Based Payment
(SAB 110), which became effective on January 1, 2008. SAB 110 allows companies, under certain
circumstances, to continue using the simplified method of estimating the expected term of plain
vanilla share options discussed in SAB No. 107, Share-Based Payment, in accordance with SFAS
123R. Under SAB 107, the SEC staff had previously indicated that it would not expect companies to
use the simplified method for share option grants made after December
31, 2007. We adopted SAB 110 on January 1, 2008 and it did not have a material effect on our
financial condition, results of operations, or cash flows.
 Statement of Cash Flows: In fiscal 2008 we separately disclosed effects of exchange rates on cash,
reducing net cash provided by operating activities by $88 for fiscal 2007 and increasing net cash
provided by operating activities by $100 in fiscal year 2006.
 NOTE 2: CASH AND CASH EQUIVALENTS AND INVESTMENTS
 We consider highly liquid investments with maturities of three months or less at the date of
purchase to be cash equivalents. Cash equivalents consist primarily of AAA-rated money market funds
in all periods presented. Investments consist of available-for-sale ARS that we carry at fair
value. Except for direct obligations of the United States government, securities issued by agencies
of the United States government, and money market or cash management funds, we diversify our
investments by limiting our holdings with any individual issuer.




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28
 Electro Rent 2008 Annual Report
 Our investments are intended to establish a high-quality portfolio that preserves principal, meets
liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in
relationship to our investment guidelines and market conditions. The following is a summary of
available-for-sale securities:
 May 31, 2008Available-for-sale SecuritiesGross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAuction rate securities
    
    $
    23,600
    
    
    $
    
    
    
    $
    (999
    )
    
    $
    22,601$
    23,600
    
    
    $
    
    
    
    $
    (999
    )
    
    $
    22,601
 May 31, 2007Available-for-sale SecuritiesGross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAuction rate securities
    
    $
    23,550
    
    
    $
    
    
    
    $
    
    
    
    $
    23,550$
    23,550
    
    
    $
    
    
    
    $
    
    
    
    $
    23,550
 We record unrealized gains and losses on our available-for-sale debt securities, net of tax, in
accumulated other comprehensive income in the shareholders equity section of our balance sheets.
Such an unrealized loss does not reduce net income for the applicable accounting period. The gross
unrealized losses on our available-for-sale debt securities at May 31, 2008 were $999. We held no
available-for-sale debt securities that were in an unrealized loss position at May 31, 2007. Our
available-for-sale securities have been in a continuous unrealized loss position for less than
twelve months as of May 31, 2008.
 We include realized gains and losses on our available-for-sale debt securities in interest and
other income in our statements of operations. There were no gross realized gains and losses on our
available-for-sale debt securities for the fiscal years ended May 31, 2008, 2007, or 2006.
 At May 31, 2008, we held $23.6 million, at cost, in auction rate securities (ARS), which we
classify as investments. Our ARS are long-term debt instruments backed by student loans, a
substantial portion of which are guaranteed by the United States government. All of our ARS have
credit ratings of AAA or AA, and none are mortgage-backed debt obligations. Historically, our ARS
were highly liquid, using a Dutch auction process that resets the applicable interest rate at
predetermined intervals, typically every 35 days, to provide liquidity at par. However, as a result
of liquidity issues in the global credit and capital markets, the auctions for all of our ARS
failed beginning in February 2008 when sell orders exceeded buy orders. The failures of these
auctions do not affect the value of the collateral underlying the ARS, and we continue to earn and
receive interest on our ARS at a pre-determined formula with spreads tied to particular interest
rate indexes. We value the ARS from quotes received from our broker which are derived from their
internally developed model. In determining a fair value for each ARS, the model weighted various
factors, including assessments of credit quality, duration, insurance wraps, portfolio composition,
discount rates, overall capital market liquidity and comparable securities, if any. We consider
declines in ARS fair market values due to lack of liquidity to be a temporary impairment that is
recorded as an unrealized loss in the shareholders equity section of our balance sheet.
 We continue to monitor the market for ARS and consider its impact (if any) on the fair market value
of our investments. If the market conditions deteriorate further, we may be required to record
additional unrealized losses in other comprehensive income or other than temporary impairment
charges. We intend and have the ability to hold our ARS until the market recovers as we do not
anticipate having to sell these securities to fund the operations of our business. We believe that,
based on our current cash and cash equivalents balance, the current lack of liquidity in the credit
and capital markets will not have a material impact on our liquidity, cash flow or ability to fund
our operations.
 The amortized cost and estimated fair value of the available-for-sale securities at May 31, 2008,
by maturity, are shown below. Expected maturities can differ from contractual maturities because
the issuers of the securities may have the right to prepay




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29
 Electro Rent 2008 Annual Report
 obligations without prepayment penalties. We do not believe that our available-for-sale securities
are available to fund our current operations.
 Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-saleDue in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Due after one year and through five years
    
    
    1,700
    
    
    
    
    
    
    
    (100
    )
    
    
    1,600Due after five years and through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due after ten years
    
    
    21,900
    
    
    
    
    
    
    
    (899
    )
    
    
    21,001$
    23,600
    
    
    $
    
    
    
    $
    (999
    )
    
    $
    22,601
 NOTE 3: ACQUISITION
 On January 31, 2006, we completed the acquisition, pursuant to a Stock Purchase Agreement (SPA),
of Rush Computer Rentals, Inc. (Rush), in order to facilitate the growth of our data products
business. Rush was similar to our existing data products business, and was one of the leading
providers of personal computers and related equipment for rent or sale in the northeastern United
States. Before taking into account Rushs cash balance, an aggregate purchase price of $9.7 million
was paid in cash at closing. In addition, $1.0 million of contingent consideration was paid to the
shareholders of Rush based upon the achievement of certain revenue objectives through February
2008. The purchase price, subject to post-closing adjustments, was allocated to the net assets
acquired based upon their fair values as of the date of the transaction, with the excess recorded
as goodwill.
 During fiscal 2007 we increased the carrying value of goodwill by $776, consisting of (i) $570
resulting from our final valuation of certain assets acquired and costs incurred to acquire Rush,
including revisions to certain assumptions used to determine the value of the intangible assets
acquired from Rush, and (ii) purchase price adjustments of $206. The purchase price adjustments
consisted of (i) $750 of additional consideration we paid in accordance with the revenue earnout
provisions contained in the SPA, offset by (ii) settlements received totaling $544. Included in the
settlements were $102 in post-closing adjustments to the sellers closing date balance sheet and
$442 related to certain claims for losses due to breach of specific representations and warranties
included in the SPA.
 We increased the carrying value of goodwill by $250 during the fiscal year ended May 31, 2008 in
accordance with the revenue earnout provisions contained in the SPA.
 The results of operations of Rush have been included in our statements of operations from the date
of the acquisition.
 NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
 As a result of the Rush acquisition, we recorded $2.1 million of goodwill and $2.3 million of
intangibles in fiscal 2006. The carrying amount of goodwill was $3.1 million and $2.9 million at
May 31, 2008 and 2007, respectively.
 The changes in carrying amount of goodwill and other intangible assets for the year ended May 31,
2008 are as follows:
 Balance as ofJune 1, 2007
    
    
    
    
    
    
    
    
    
    
    Balance as of(net of amortization)
    
    
    Adjustments
    
    
    Amortization
    
    
    May 31, 2008Goodwill
    
    $
    2,859
    
    
    $
    250
    
    
    $
    
    
    
    $
    3,109Trade Name
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    411Non-compete agreements
    
    
    533
    
    
    
    
    
    
    
    (267
    )
    
    
    266Customer relationships
    
    
    627
    
    
    
    
    
    
    
    (235
    )
    
    
    392$
    4,430
    
    
    $
    250
    
    
    $
    (502
    )
    
    $
    4,178
 The goodwill and intangibles have been assigned to our DP operating segment. During fiscal 2008 and
2007, we revised the gross carrying value of goodwill and intangibles primarily as a result of
additional purchase price consideration and final valuation of




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##### 



30 Electro Rent 2008 Annual Report
 certain assets acquired and costs incurred to acquire Rush (see Note 3). Goodwill is not deductible
for tax purposes.
 There were no conditions that indicated any impairment of goodwill or identifiable intangible
assets in fiscal 2008 and 2007. The annual impairment review date for goodwill is May 31.
 Intangible assets with finite useful lives are amortized over their respective estimated useful
lives. The following table provides a summary of our intangible assets:
 May 31, 2008Estimated
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrade name
    
    
    
    
    
    $
    411
    
    
    $
    
    
    
    $
    411Non-compete agreements
    
    2-5 years
    
    
    
    1,050
    
    
    
    (784
    )
    
    
    266Customer relationships
    
    3-4 years
    
    
    
    1,014
    
    
    
    (622
    )
    
    
    392$
    2,475
    
    
    $
    (1,406
    )
    
    $
    1,069May 31, 2007Estimated
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrade name
    
    
    
    
    
    $
    411
    
    
    $
    
    
    
    $
    411Non-compete agreements
    
    2-5 years
    
    
    
    1,050
    
    
    
    (517
    )
    
    
    533Customer relationships
    
    3-4 years
    
    
    
    1,014
    
    
    
    (387
    )
    
    
    627$
    2,475
    
    
    $
    (904
    )
    
    $
    1,571
 Amortization expense was $502, $610 and $232 for the fiscal years ended May 31, 2008, 2007 and
2006, respectively.
 Amortization expense for customer relationships and non-compete agreements is included in selling,
general and administrative expenses. The following table provides estimated future amortization
expense related to intangible assets:
 FutureYear ending May 31,
    
    Amortization2009
    
    $
    3352010
    
    
    2572011
    
    
    662012
    
    
    02013
    
    
    0$
    658
 NOTE 5: BORROWINGS
 On October 23, 2007, we renewed our 364-day agreement with a bank to provide a revolving line of
credit for $10 million, subject to certain restrictions, to meet potential equipment acquisition
needs as well as working capital and general corporate requirements. The interest rate on the line
of credit is based on the prime rate or LIBOR. We had no borrowings outstanding during the fiscal
years ended May 31, 2008, 2007 and 2006.




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##### 



31 Electro Rent 2008 Annual Report
 NOTE 6: INCOME TAXES
 On June 1, 2007, we adopted the provisions of FIN 48. FIN 48 establishes a single model to address
the accounting for uncertain tax positions. Specifically, FIN 48 prescribes a recognition threshold
that a tax position is required to meet before being recognized in the financial statements and
provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition issues.
 We applied FIN 48 to all open tax positions as of June 1, 2007. The total amount of unrecognized
tax benefits as of the date of its adoption was $4.3 million. As a result of the implementation of
FIN 48, we recognized a $3.9 million increase in the liability for unrecognized tax benefits with a
corresponding increase in deferred tax assets, and $366 as a reduction to retained earnings.
 We recognize interest and penalties accrued with respect to uncertain tax positions as components
of our income tax provision. We had accrued approximately $349 for the payment of interest and
penalties as of May 31, 2007. Upon adoption of FIN 48 on June 1, 2007 we increased our accrual for
interest and penalties to $1.1 million. At May 31, 2008, our accrual for interest and penalties was
$1.6 million.
 The reconciliation of our unrecognized tax benefits, including our accrual for interest and
penalties, is as follows:
 Balance as of June 1, 2007
    
    $
    3,119Increases related to prior
year tax positions
    
    
    574Balance as of May 31, 2008
    
    $
    3,693
 The unrecognized tax benefits at May 31, 2008 and June 1, 2007, if recognized, would have no impact
on the effective tax rate. However, the derecognition of $1,081 and $715, respectively, related to
the associated interest and penalties at May 31, 2008 and June 1, 2007 would decrease the effective
tax rate.
 We are subject to taxation in the U.S., various states and foreign jurisdictions. We have
effectively settled all income tax matters reviewed by the tax authorities for the United States
federal jurisdiction for years through fiscal 2006. Major state jurisdictions have been examined
and closed through fiscal years 2004 and 2005. Foreign jurisdictions have not been examined for
their respective maximum statutory periods, and the oldest years where the statute is still open
are fiscal 2001 and 2006. No audits are currently in process.
 There were no additional unrecognized tax benefits for the year ended May 31, 2008. We anticipate
no significant increase or decrease in the total amounts of unrecognized tax benefits within 12
months of the date of this report.
 For financial reporting purposes, income before income taxes includes the following:
 2008
    
    
    2007
    
    
    2006Domestic
    
    $
    31,326
    
    
    $
    34,501
    
    
    $
    34,818Foreign
    
    
    2,661
    
    
    
    (50
    )
    
    
    (412
    )$
    33,987
    
    
    $
    34,451
    
    
    $
    34,406
 The provision for income taxes consists of the following for the fiscal years
ended May 31:
 2008
    
    
    2007
    
    
    2006CurrentFederal
    
    $
    5,707
    
    
    $
    10,172
    
    
    $
    9,539State
    
    
    1,589
    
    
    
    2,501
    
    
    
    1,736Foreign
    
    
    1,954
    
    
    
    138
    
    
    
    DeferredFederal
    
    
    3,489
    
    
    
    545
    
    
    
    198State
    
    
    694
    
    
    
    46
    
    
    
    749Foreign
    
    
    (550
    )
    
    
    
    
    
    
    $
    12,883
    
    
    $
    13,402
    
    
    $
    12,222




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##### 



32 Electro Rent 2008 Annual Report
 A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows
for the fiscal years ended May 31:
 2008
    
    
    2007
    
    
    2006Statutory federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes, net of federal benefit
    
    
    4.4
    
    
    
    4.8
    
    
    
    4.6Release of reserves due to completed tax audits and changes in tax estimate
    
    
    
    
    
    
    
    
    
    
    (2.8
    )Permanent differences resulting from tax advantaged investments
    
    
    (1.1
    )
    
    
    (0.9
    )
    
    
    (1.0
    )Permanent differences resulting from extraterritorial income exclusions and other
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.3
    )Effective tax rate
    
    
    37.9
    %
    
    
    38.9
    %
    
    
    35.5
    %
 The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities at May 31, 2008 and 2007 are as follows:
 2008
    
    
    2007Deferred tax assets:Goodwill and intangible assets
    
    $
    3,661
    
    
    $
    4,195Allowance for doubtful accounts
    
    
    144
    
    
    
    106Deferred compensation and benefits
    
    
    1,673
    
    
    
    1,592Tax credits, net
    
    
    3,880
    
    
    
    Unrealized losses on securities
    
    
    380
    
    
    
    Other
    
    
    1,434
    
    
    
    1,54811,172
    
    
    
    7,441Deferred tax liabilities:Accumulated depreciation and amortization
    
    
    (26,076
    )
    
    
    (22,631
    )Net deferred tax liabilities
    
    $
    (14,904
    )
    
    $
    (15,190
    )
 The effective tax rate in fiscal 2008, 2007 and 2006 was 37.9%, 38.9% and 35.5%, respectively. The
lower effective rate in fiscal 2006 was due to a decrease in the amount of tax reserves released as
a result of completed tax audits and changes in estimated tax exposures combined, partially offset
by the effect of excluding the benefit of foreign losses. The reevaluation of accrued liabilities
related to positions taken on federal and state returns reduced tax expense by $971 in fiscal 2006.
The lower effective rate in fiscal 2008 is due primarily to the utilization of tax loss
carryforwards for our European subsidiary, and lower tax rates on earnings from our foreign
subsidiaries. Tax advantaged investments reduced expense by $393 for fiscal 2008. The combined
benefits of tax advantaged investments and extra-territorial income exclusions reduced expense by
$561 and $626 for fiscal 2007 and 2006, respectively. We determined that a valuation allowance was
required in fiscal 2007 and 2006 of $182 and $154, respectively, for our deferred tax asset related
to certain foreign net operating loss carryforwards. Income in the current period was sufficient to
fully utilize the foreign net operating loss carryforwards. As of May 31, 2008, 2007 and 2006, U.S.
income taxes have not been assessed on approximately $1.7 million, $0 and $0, respectively, of
undistributed earnings of foreign subsidiaries because management considers these earnings to be
invested indefinitely.
 NOTE 7: SALES-TYPE LEASES
 We had certain customer leases providing bargain purchase options, which are accounted for as
sales-type leases. Interest income is recognized over the life of the lease using the
effective interest method. The minimum lease payments receivable and the net investment included in
other assets for such leases are as follows at May 31:
 2008
    
    
    2007Gross minimum lease payments receivable
    
    $
    1,392
    
    
    $
    818Less  unearned interest
    
    
    (112
    )
    
    
    (55
    )Net investment in sales-type lease receivables
    
    $
    1,280
    
    
    $
    763




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##### 



33 Electro Rent 2008 Annual Report
 NOTE 8: COMPUTATION OF EARNINGS PER SHARE
 The following is a reconciliation of the denominator used in the computation of
basic and diluted EPS:
 2008
    
    
    2007
    
    
    2006Denominator:Denominator for basic earnings per share  weighted average common
shares outstanding
    
    
    25,910
    
    
    
    25,716
    
    
    
    25,359Effect of dilutive options
    
    
    169
    
    
    
    337
    
    
    
    40326,079
    
    
    
    26,053
    
    
    
    25,762Net income
    
    $
    21,104
    
    
    $
    21,049
    
    
    $
    22,184Earnings per share:Basic
    
    $
    0.81
    
    
    $
    0.82
    
    
    $
    0.87Diluted
    
    $
    0.81
    
    
    $
    0.81
    
    
    $
    0.86
 Certain options to purchase our common stock were not included in the computation of diluted
earnings per share because to do so would have been antidilutive. The quantity of such options is
38, 38 and 3 for the years ended May 31, 2008, 2007 and 2006, respectively.
 NOTE 9: ALLOWANCE FOR DOUBTFUL ACCOUNTS
 We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of
customers to pay our invoices. We record an allowance for doubtful accounts in amounts equal to the
estimated losses expected to be incurred in the collection of the accounts. The estimated losses
are based on historical collection experience in conjunction with an evaluation of the current
status of the existing accounts. Customer accounts are written off against the allowance for
doubtful accounts when an account is determined to be uncollectible. If the financial condition of
our customers were to deteriorate, additional allowances could be required that would reduce
income. Conversely, if the financial condition of the customers were to improve or if legal
remedies to collect past due amounts were more successful than expected, the allowance for doubtful
accounts may need to be reduced and income would be increased. A roll-forward of the allowance is
as follows at May 31:
 2008
    
    
    2007
    
    
    2006Beginning of year
    
    $
    251
    
    
    $
    681
    
    
    $
    839Provision (recovery) for doubtful accounts
    
    
    425
    
    
    
    (231
    )
    
    
    46Write-offs
    
    
    (317
    )
    
    
    (199
    )
    
    
    (204
    )End of year
    
    $
    359
    
    
    $
    251
    
    
    $
    681
 NOTE 10: RENTALS UNDER NONCANCELLABLE OPERATING LEASES
 We rent equipment on a short-term basis and lease equipment for periods greater than 12 months.
Such leases provide the lessee with the option of renewing the agreement for periods of up to
twelve months or purchasing the equipment at fair market value at the end of the initial or renewal
term. Our cost of equipment under operating leases at May 31,
2008, with remaining noncancellable lease terms of more than one year, is $9.9 million, before
accumulated depreciation of $4.0 million, and the net book value is $5.9 million.




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##### 



34 Electro Rent 2008 Annual Report
 A schedule of minimum future rentals to be received on noncancellable operating leases with
remaining lease terms of more than one year as of May 31, 2008 is as follows:
 2009
    
    $
    5,2852010
    
    
    3,2502011
    
    
    7992012
    
    
    642013
    
    
    28$
    9,426
 NOTE 11: OTHER PROPERTY
 Other property, at cost, consists of the following at May 31:
 2008
    
    
    2007Land
    
    $
    6,985
    
    
    $
    6,985Buildings
    
    
    14,387
    
    
    
    14,387Furniture and other equipment
    
    
    7,284
    
    
    
    7,183Leasehold improvements
    
    
    112
    
    
    
    19628,768
    
    
    
    28,751Less  accumulated depreciation and amortization
    
    
    (14,427
    )
    
    
    (13,761
    )$
    14,341
    
    
    $
    14,990
 NOTE 12: COMMITMENTS AND CONTINGENCIES
 We lease certain facilities under various operating leases. Most of the lease agreements provide us
with the option of renewing our leases at the end of the initial lease term, at the fair rental
value, for periods of up to five years. In most cases, we expect that in the normal course of
business facility leases will be renewed or replaced by other leases.
 Minimum payments under these leases, exclusive of property taxes and insurance, are as follows:
 2009
    
    $
    7642010
    
    
    4192011
    
    
    2362012
    
    
    842013 and later
    
    
    115$
    1,618
 Rent expense was $1.1 million, $978 and $808 in fiscal 2008, 2007 and 2006, respectively.
 We purchase substantial amounts of rental equipment from numerous vendors. As a result, we have
occasionally been included as a member of the plaintiff class in class action lawsuits related to
product warranties or price adjustments. Settlements of such claims can result in distributions of
cash or product coupons that can be redeemed, sold or used to purchase new equipment. We recognize
any benefits from such settlements when all
contingencies have expired to the extent either cash has been received and/or realization of value
from any coupon is assured.
 We are subject to legal proceedings and business disputes involving ordinary and routine claims.
The ultimate legal and financial liability with respect to such matters cannot be estimated with
certainty and requires the use of estimates in recording liabilities for




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##### 



35
 Electro Rent 2008 Annual Report
 potential litigation settlements. Estimates for losses from litigation are made after consultation
with outside counsel. If estimates of potential losses increase or the related facts and
circumstances change in the future, we may be required to record either more or less litigation
expense. We are not involved in any pending or threatened legal proceedings, other than routine
legal proceedings and claims incidental to our business, that we believe could reasonably be
expected to have a material adverse effect on our financial condition, results of operations, or
cash flows at May 31, 2008.
 NOTE 13: STOCK OPTION PLANS AND EQUITY INCENTIVE PLAN
 We have an Equity Incentive Plan that authorizes the Board of Directors to grant incentive and
non-statutory stock option grants, stock appreciation rights, restricted stock awards and
performance unit per share awards covering a maximum of 3,003,926 shares of our common stock, of
which 942,500 were available for future grants at May 31, 2008. The Equity Incentive Plan replaced
our prior Stock Option Plans (those Stock Option Plans, together with the Equity Incentive Plan,
the Plans) in October 2005, although incentive stock options and non-statutory stock options
previously granted to directors, officers and consultants under the Stock Option Plans remain in
effect according to their terms. Pursuant to the Plans, we have granted incentive and non-statutory
options to directors, officers and key employees at prices not less than 100% of the fair market
value on the day of grant. Options are exercisable at various dates over a five-year or ten-year
period from the date of grant. The Plans provide for a variety of vesting dates with the majority
of the options vesting at a rate of one-third per year over a period of three years or one-fourth
per year over a period of four years from the date of grant. All outstanding options expire at
dates ranging from October 2008 to October 2011.
 The following table summarizes certain information relative to options for common stock.
 Weighted AverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (in years)
    
    
    ValueOutstanding at June 1, 2005
    
    
    1,581,411
    
    
    $
    8.84Granted
    
    
    19,500
    
    
    
    12.14Exercised
    
    
    (453,073
    )
    
    
    8.26Forfeited/Cancelled
    
    
    (6,468
    )
    
    
    9.28Outstanding at May 31, 2006
    
    
    1,141,370
    
    
    $
    9.13Granted
    
    
    56,000
    
    
    
    17.69Exercised
    
    
    (490,827
    )
    
    
    8.74Forfeited/Cancelled
    
    
    (43,334
    )
    
    
    12.91Outstanding at May 31, 2007
    
    
    663,209
    
    
    $
    9.89Granted
    
    
    
    
    
    
    Exercised
    
    
    (142,146
    )
    
    
    9.20Forfeited/Cancelled
    
    
    (8,762
    )
    
    
    13.41Outstanding at May 31, 2008
    
    
    512,301
    
    
    $
    10.02
    
    
    
    1.5
    
    
    $
    2,238Vested and expected to vest at May 31, 2008
    
    
    509,460
    
    
    $
    9.97
    
    
    
    1.5
    
    
    $
    2,238Exercisable at May 31, 2008
    
    
    486,472
    
    
    $
    9.64
    
    
    
    1.4
    
    
    $
    2,233
 The following summarizes information regarding stock options outstanding at May 31, 2008:
 Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$1.8963  $9.5099
    
    
    69,401
    
    
    
    1.9446
    
    
    $
    7.54
    
    
    
    69,401
    
    
    $
    7.54$9.5100
    
    
    359,396
    
    
    
    1.1608
    
    
    
    9.51
    
    
    
    359,396
    
    
    
    9.51$9.5101  $17.6900
    
    
    83,504
    
    
    
    2.3761
    
    
    
    14.25
    
    
    
    57,675
    
    
    
    12.95512,301
    
    
    
    1.4651
    
    
    $
    10.02
    
    
    
    486,472
    
    
    $
    9.64
 There were no stock options granted during the year ended May 31, 2008 compared to 56 and 20 stock
options granted during the years ended May 31, 2007 and 2006, respectively. The weighted average
fair value per option granted was $0, $6.26, and $5.55 for




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##### 



36
 Electro Rent 2008 Annual Report
 the years ended May 31, 2008, 2007 and 2006, respectively. The total fair value of shares vested
during fiscal years ended May 31, 2008, 2007 and 2006 was $762, $906 and $2.1 million,
respectively. The aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted price of our common stock. The aggregate intrinsic
value of options exercised during the years ended May 31, 2008, 2007 and 2006 was $695, $3.4
million, and $2.6 million, respectively. As of May 31, 2008, there was approximately $83 of total
unrecognized compensation cost related to unvested share-based arrangements granted under our Stock
Option Plans and Equity Incentive Plan. The cost is expected to be recognized over a
weighted-average period of 1.21 years. Shares of newly issued common stock will be issued upon
exercise of stock options.
 We account for stock-based compensation in accordance with SFAS No. 123R, which requires all
share-based payments to employees, including grants of employee stock options, to be recognized as
compensation expense in the consolidated financial statements based on their fair values.
Compensation expense is recognized over the period that an employee provides service in exchange
for the award.
 We use the Black-Scholes option pricing model to calculate the fair-value of each option grant. Our
computation of expected volatility is based on historical volatility. Our computation of expected
term is determined based on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards, vesting schedules and expectations of future employee
behavior. The expected term represents the period that our stock-based awards are expected to be
outstanding and was determined based on historical experience of similar awards. The risk-free
interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term
of the option assumed at the date of grant. Forfeitures are estimated at the date of grant based on
historical experience.
 The following weighted average assumptions were used for each respective period to value option
grants:
 2007
    
    2006Risk-free interest rate
    
    
    4.7
    %
    
    
    3.9
    %Expected life (in years)
    
    
    3.5
    
    
    
    4.6Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    40.2
    
    
    
    52.5
 NOTE 14: SAVINGS PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
 We maintain a Savings Plan ( 401(k) ) and a frozen Employee Stock Ownership Plan (ESOP). Employees
become eligible to participate in the 401(k) after one year of employment. We have the option to
match contributions of participants at a rate we determine each year. For participants with three
or more years of service, we also may elect to make additional discretionary matching contributions
in excess of the rate elected for participants with less than three years of service.
 The board of directors determines the amount to be contributed annually to the 401(k) in cash,
provided that such contributions shall not exceed the amount deductible for federal income tax
purposes. Cash contributions to the 401(k) of $510, $474 and $440 were made for fiscal 2008, 2007
and 2006, respectively.
 The ESOP was established in 1975 and was frozen in 1994, at which time all participants became
fully vested. Contributions to the ESOP were invested primarily in our common stock. The ESOP held
66,469 shares of our common stock and cash of $340 at May 31, 2008.




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##### 



37
 Electro Rent 2008 Annual Report
 NOTE 15: INCOME FROM SETTLEMENT
 In fiscal 2007, we recognized as income from settlement $1.6 million relating to proceeds received
from a class action lawsuit on behalf of purchasers of certain software products.
 NOTE 16: SEGMENT REPORTING AND RELATED DISCLOSURES
 SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information (SFAS 131),
establishes annual and interim reporting standards for an enterprises operating segments and
related disclosures about its products, services, geographic areas and major customers. According
to SFAS 131, operating segments are defined as components of an enterprise for which separate
financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. In order to determine our
operating segments, we considered the following guidance in accordance with SFAS 131. An operating
segment is a component of an enterprise (i) that engages in business activities from which it may
earn revenues and incur expenses, (ii) whose operating results are regularly reviewed by the
enterprises chief operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance, and (iii) for which discrete financial information is
available. In accordance with this guidance, we have identified two operating segments: the rental,
lease and sale of T&M and DP equipment.
 Although we have separate operating segments for T&M and DP equipment under SFAS 131, these two
segments are aggregated into a single reportable segment because they have similar economic
characteristics and qualitative factors. The T&M and DP segments have similar long-term average
gross margins, and they both rent, lease and sell electronic equipment to large corporations,
purchase directly from major manufacturers, configure and calibrate the equipment, and ship
directly to customers.
 Our equipment pool, based on acquisition cost, comprised $289.1 million of T&M equipment and $44.6
million of DP equipment at May 31, 2008 and $259.8 million of T&M equipment and $42.1 million of DP
equipment at May 31, 2007.
 Revenues for these operating segments were as follows for the fiscal year ended May 31:
 T&M
    
    
    DP
    
    
    Total2008Rentals and leases
    
    $
    85,209
    
    
    $
    23,552
    
    
    $
    108,761Sales of equipment and other revenues
    
    
    32,458
    
    
    
    3,317
    
    
    
    35,775$
    117,667
    
    
    $
    26,869
    
    
    $
    144,5362007Rentals and leases
    
    $
    79,413
    
    
    $
    23,670
    
    
    $
    103,083Sales of equipment and other revenues
    
    
    20,424
    
    
    
    3,352
    
    
    
    23,776$
    99,837
    
    
    $
    27,022
    
    
    $
    126,8592006Rentals and leases
    
    $
    71,844
    
    
    $
    18,704
    
    
    $
    90,548Sales of equipment and other revenues
    
    
    22,165
    
    
    
    3,499
    
    
    
    25,664$
    94,009
    
    
    $
    22,203
    
    
    $
    116,212
 No single customer accounted for more than 10% of total revenues during either the year ended May
31, 2008, 2007 or 2006.




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##### 



38
 Electro Rent 2008 Annual Report
 Selected country information is presented below:
 Year ended May 31,
    
    2008
    
    
    2007
    
    
    2006Revenues1:U.S.
    
    $
    123,396
    
    
    $
    110,983
    
    
    $
    103,783Other2
    
    
    21,140
    
    
    
    15,876
    
    
    
    12,429Total
    
    $
    144,536
    
    
    $
    126,859
    
    
    $
    116,212
 As of May 31,
    
    2008
    
    
    2007Net Long Lived Assets3:U.S.
    
    $
    165,984
    
    
    $
    158,377Other2
    
    
    25,003
    
    
    
    22,849Total
    
    $
    190,987
    
    
    $
    181,226
 1
    
    Revenues by country are based on the location of shipping destination, whether the
order originates in the U.S. parent or a foreign subsidiary.2
    
    Other consists of other foreign countries that each individually accounts for less
that 10% of the total revenues or assets.3
    
    Net long-lived assets include rental and lease equipment, other property, goodwill and
intangibles, net of accumulated depreciation and amortization. NOTE 17: QUARTERLY INFORMATION (UNAUDITED)
 IncomeTotal
    
    
    Gross
    
    
    Before
    
    
    Net
    
    
    Earnings per shareRevenues
    
    
    Profit
    
    
    Taxes
    
    
    Income
    
    
    Basic
    
    
    DilutedFiscal Year 2008First Quarter
    
    $
    34,609
    
    
    $
    18,753
    
    
    $
    8,728
    
    
    $
    5,314
    
    
    $
    0.21
    
    
    $
    0.20Second Quarter
    
    
    35,363
    
    
    
    18,963
    
    
    
    9,138
    
    
    
    5,736
    
    
    
    0.22
    
    
    
    0.22Third Quarter
    
    
    35,663
    
    
    
    17,704
    
    
    
    7,783
    
    
    
    4,844
    
    
    
    0.19
    
    
    
    0.19Fourth Quarter
    
    
    38,901
    
    
    
    19,215
    
    
    
    8,338
    
    
    
    5,210
    
    
    
    0.20
    
    
    
    0.20Annual totals
    
    $
    144,536
    
    
    $
    74,635
    
    
    $
    33,987
    
    
    $
    21,104
    
    
    $
    0.81
    
    
    $
    0.81Fiscal Year 2007First Quarter
    
    $
    30,480
    
    
    $
    17,982
    
    
    $
    7,887
    
    
    $
    4,759
    
    
    $
    0.19
    
    
    $
    0.18Second Quarter
    
    
    31,951
    
    
    
    17,943
    
    
    
    8,265
    
    
    
    4,924
    
    
    
    0.19
    
    
    
    0.19Third Quarter
    
    
    30,999
    
    
    
    16,178
    
    
    
    8,609
    
    
    
    5,198
    
    
    
    0.20
    
    
    
    0.20Fourth Quarter
    
    
    33,429
    
    
    
    18,908
    
    
    
    9,690
    
    
    
    6,168
    
    
    
    0.24
    
    
    
    0.24Annual totals
    
    $
    126,859
    
    
    $
    71,011
    
    
    $
    34,451
    
    
    $
    21,049
    
    
    $
    0.82
    
    
    $
    0.81




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##### 



39
 Electro
Rent 2008 Annual Report
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors and Shareholders of
Electro Rent Corporation
 Van Nuys, California
 We have audited the accompanying consolidated balance sheets of Electro Rent Corporation and
subsidiaries (the Company) as of May 31, 2008 and 2007, and the related consolidated statements
of operations, shareholders equity, and cash flows for each of the three years in the period ended
May 31, 2008. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
 In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Electro Rent Corporation and subsidiaries at May 31, 2008 and 2007, and
the results of their operations and their cash flows for each of the three years in the period
ended May 31, 2008, in conformity with accounting principles generally accepted in the United
States of America.
 We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of May 31, 2008,
based on the criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 12,
2008 expressed an unqualified opinion on the Companys internal control over financial reporting.
 
 Los Angeles, California
 August 12, 2008




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##### 



40
 Electro
Rent 2008 Annual Report
 CORPORATE INFORMATION
  Board of DirectorsDaniel Greenberg
Chairman of the Board and
Chief Executive Officer
    
    Gerald D. Barrone
Retired, former President
and Chief Operating Officer
Coast Federal Bank
    
    Nancy Y. Bekavac
Retired, former President
Scripps College*
    
    Karen J. Curtin
Venture Partner,
Paradigm Capital Ltd.;
former Executive Vice President
Bank of America*
    
    Joseph J. Kearns
President
Kearns Associates*
    
    James S. Pignatelli
Chairman, President and
Chief Executive Officer
Unisource Energy Corporation
 Corporate
Officers
 
 Corporate
Offices
   
 *
    
    Audit Committee
    
    Compensation Committee Capital Stock and Shareholders
 Our common stock is quoted on NASDAQ under the symbol ELRC. There were approximately 366
shareholders of record at June 20, 2008. During the fiscal year ended May 31, 2008, we purchased
11,740 shares of our common stock for an aggregate of $0.2 million, at an average price of $12.96
per share. As of May 31, 2008, 946,000 shares of our common stock remain authorized for repurchase.
The following table sets forth, for the period shown, the high and low closing sale prices in the
NASDAQ National Market System as reported by NASDAQ.
 Fiscal Year 2008
    
    
    Fiscal Year 2007High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    15.70
    
    
    $
    12.66
    
    
    $
    16.65
    
    
    $
    14.10Second Quarter
    
    
    15.25
    
    
    
    13.11
    
    
    
    18.00
    
    
    
    14.75Third Quarter
    
    
    15.40
    
    
    
    12.98
    
    
    
    16.75
    
    
    
    15.11Fourth Quarter
    
    
    15.93
    
    
    
    12.70
    
    
    
    15.22
    
    
    
    12.98